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Russia rouble, shares rise on end to Georgia ops

Analysis

Russian assets rallied on Tuesday after President Dmitry Medvedev ordered an end to Russia's military operation in Georgia.

The Kremlin quoted Medvedev as telling Defence Minister Anatoly Serdyukov he had decided to end the operation to “force the Georgian authorities to peace.”

After standing as much as 1.9% down in early trade, the MICEX index rose 3.1% to stand at 1,456.1.

The previous day, the indexes had fallen near two-year lows as Russian operations expanded outside Georgia's breakaway region of South Ossetia.

“That's the signal people were waiting for. Things have fallen so low that we are about 50 cheaper than Brazilian equity. Any blue chip right now is in huge demand, even the oil stocks,” Alfa Bank equity salesman Konstantin Shapsharov said.

The energy-heavy share indexes were pressured lower in the morning by falling oil prices.

The rouble strengthened by 10 kopecks to 29.55 against the central bank's euro/dollar basket.

“It's very positive news for the rouble because the Georgian crisis was the only argument for the rouble weakness we saw in the last couple of days,” Ulrich Leuchtmann, strategist at Commerzbank Corporates & Markets in Frankfurt, said.

“With the crisis seemingly gone the rouble should recover from the losses it suffered ... Something in the range of 29.35-40 versus the basket should be sensible if the news is correct and we really see an end of the crisis.”

Russia's portion of the benchmark EMBI+ index narrowed by 2 basis points on the day, having earlier widened three basis points 11EMJ. Five-year credit default swaps, a measure of default risk, fell three basis points to 111-112. (Reuters)

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